I'm not going to say that you're wrong. Your approach is a wise one, and it's one that I follow myself.
But there is more to it than that. You shouldn't let society off the hook, here. The problem with a society where credit grows on trees is that it pushes the price up on everything. Why does that tiny house on the corner cost $700k? Because if you offer $350k in cash you will be outbid by the unemployed guy down the block whose bank is willing to loan him $700k.
If you won't take those loans... perhaps you don't get to own a house. That's okay with me, but I'm relatively well paid and can afford some fairly well-located rental housing. A less well-paid person like a schoolteacher or a librarian might have to choose a two or three-hour commute, or leave the city of their birth altogether, unless they're willing to become debtors like the rest of their peers.
Think about college. Does your determination to avoid debt extend to college? Is your desire to attend MIT evidence of your "sense of entitlement"? When you're interviewing with the Ph.D.s at Google and you show them your degree from the DeVry Institute, do you think they're going to congratulate you on your good financial sense? Um, no. But to attend MIT you're going to have to compete with the people who are willing to go into debt -- and, because the easy credit of the last decade has encouraged colleges to raise tuition through the roof, you will need lots of debt of your own, or a very big pile of cash. Colleges wouldn't be so expensive if credit weren't so easy to get.
Being financially prudent is smart, but it's hard to do it on your own when society is swimming in the other direction.
MIT's a bad example now, since tuition is completely free for anyone whose household makes less than $75k/year. Same goes for Stanford (under $100k), Amherst (under about $60k), and a bunch of other top colleges. I paid only about 1/3 of the Amherst sticker price, less than the UMass sticker price for a much better name & connections, with the rest being covered by outright grants.
This trend is new, last few years only, so nobody who went to school 10+ years ago should feel screwed over. (Other than having a bad birthday, of course.)
I'm just worried that a lot of people who could've made it into MIT or Stanford or Amherst say "This is too expensive" and don't try for it. If you can get in and really want to go there, they will find a way for you to be able to attend. Always compare financial aid awards before deciding, and know that you can often get back to the financial aid department with "Well, I really really want to go to Amherst, but I just can't afford it" and odds are good that they'll up your financial aid package. (Assuming you really can't afford it - you should expect to have to sacrifice some lattes and vacations.)
The rest of your post is right-on. It's really the middle-tier colleges and state universities that are inflating rapidly though, because those are the ones whose student bodies rely the most on loans.
MIT's a bad example now, since tuition is completely free for anyone whose household makes less than $75k/year.
Yeah, it's easy for us old-timers -- or those of us whose friends and relatives are trying to afford those middle-tier schools that don't have this policy -- to forget this fact.
But good for MIT, Harvard, and the other elite schools for taking this new path. It might have made a big difference in my life had it happened years ago.
If you can get in and really want to go there, they will find a way for you to be able to attend.
Yes, and this was true back in my day as well. They make it possible to attend... by going into debt. The amount of debt that is considered possible is, however, constrained by the supply of credit and by the amount of debt that society considers "reasonable". That's a much larger number today than it used to be.
My point is that societal factors like credit policy, accounting practices, banking regulations, and the popular acceptance of the debtor lifestyle change your environment in ways that are difficult to ignore and resist, even for those of us who are informed enough to try to avoid debt.
I'm not saying all debt is bad, in fact I have a decent amount of debt towards my college education. However I manage it responsibly. Debt as a necessity is one thing, paying $750k for a house because your bank will loan it to you is poor judgement.
One person's necessity is another person's luxury. I was prudent: I turned down MIT because it was too expensive and took a full-tuition scholarship to a less prestigious school, and it hasn't hurt my career any... or has it? It might have been fun to have been living in a startup hub just before the web was born, back when PG was still a grad student...
It's also much easier to see, now that the bubble has burst, that $750k for a house is a bad move. It wasn't so clear back in 2002, when my friend was kicking himself for having refused to pay $350k for a house back in 1999 because he knew it was terribly overpriced (he was new to the Bay Area). In 2002 the equivalent house was selling for $450k. Such houses may have hit $700k before the bubble burst four years later.
(Fortunately, my friend stuck to his guns, perhaps with some help from the housing-bubble-related articles I sent him two years ago. He's still a renter. But remaining a renter was an extreme fringe position in 2004: No newspaper would tell you that buying was a bad idea (real estate agents buy ads!), so you had to find out from blogs, or by having older friends who had noticed the housing crash of the early 1990s, or by reading Malkiel or Charles Mackay. I'm proud of being numerate, but I can forgive most of society for being less numerate than I am.)
The funny thing about housing is it's still over priced in most places. Post bubble it's much cheaper to rent in most areas unless you are in the highest income tax bracket. And with the 30 year ROI which approximates inflation most investments are much better in the long term.
EX: 1.5k per month to rent vs. a 350k condo with 300$/month condo fees looks good until you add in property taxes (.7%), maintenance, and transaction costs.
Post bubble it's much cheaper to rent in most areas unless you are in the highest income tax bracket.
Yeah, that sure is funny, isn't it? It's almost as if "post-bubble" is the wrong word, the bubble is still in the process of deflating, and housing prices are likely to continue to fall for the next several years!
It's not realistic to directly compare rent with a 30 year mortgages because at the end of rent you have a house and at the end of renting you have nothing and your rent is going up every year while your house payment is constant.
IMO it's best to compare interest only loan on $1,589,000 to renting @ $5,000. So 6% a year = 7,945/month but that's pretax so it's closer to 5561.5. But to keep up with inflation it's reasonable for the home value to increase at ~2%/year and rent should also increase at that rate. But you need to add in ongoing costs like taxes etc. If you run the numbers renting and owning a home cost about the same over 15 years and investing the difference in value which is reasonable. The problem is you want to buy the house you want in 20 years so most people go for a larger house than they need today.
Note: Owning a home is risky but so is renting. When you rend you can randomly have increases of 20% per year or it stagnates for a while but with home ownership you’re stuck in that area so your job or other local issues become a much larger problem. Basically having an affordable mortgage in a good area is not bad as long as you don’t need to move.
But there is more to it than that. You shouldn't let society off the hook, here. The problem with a society where credit grows on trees is that it pushes the price up on everything. Why does that tiny house on the corner cost $700k? Because if you offer $350k in cash you will be outbid by the unemployed guy down the block whose bank is willing to loan him $700k.
If you won't take those loans... perhaps you don't get to own a house. That's okay with me, but I'm relatively well paid and can afford some fairly well-located rental housing. A less well-paid person like a schoolteacher or a librarian might have to choose a two or three-hour commute, or leave the city of their birth altogether, unless they're willing to become debtors like the rest of their peers.
Think about college. Does your determination to avoid debt extend to college? Is your desire to attend MIT evidence of your "sense of entitlement"? When you're interviewing with the Ph.D.s at Google and you show them your degree from the DeVry Institute, do you think they're going to congratulate you on your good financial sense? Um, no. But to attend MIT you're going to have to compete with the people who are willing to go into debt -- and, because the easy credit of the last decade has encouraged colleges to raise tuition through the roof, you will need lots of debt of your own, or a very big pile of cash. Colleges wouldn't be so expensive if credit weren't so easy to get.
Being financially prudent is smart, but it's hard to do it on your own when society is swimming in the other direction.